Amid the fervor surrounding Bitcoin's recent surge above $100,000, altcoins like Solana, Cardano, and Dogecoin have enjoyed their own rallies. There is clear excitement in the world of crypto investing.
XRP (XRP -0.56%) in particular has garnered a lot of attention for shooting up about 400% since early November. The crypto briefly traded above $2.70 before retreating to its current levels of about $2.30. Why the increase? And should you buy XRP while it's trading for less than $3?
Election results were welcomed by many XRP enthusiasts
Bitcoin and the whole market reacted very favorably to Donald Trump's presidential election win in November. That's because the president-elect made a string of pro-crypto statements along the campaign trail that included his intention to make America the "crypto capital of the planet."
While many cryptocurrencies stand to gain from a second Trump presidency, XRP could be among those that receive the biggest boost. The token drew the attention of regulators under the Biden administration, which claimed it had violated securities laws, and in 2020, the Securities and Exchange Commission filed a lawsuit.
Trump's SEC is likely to be much friendlier to XRP; the president-elect is replacing the current SEC chair, Gary Gensler, with Paul Atkins, a distinctly pro-crypto pick. Although XRP's suit began under Gensler's predecessor, he continued to pursue it, taking an aggressive stance toward XRP and the industry as a whole.
Last year, XRP received good news about the SEC's suit. A judge ruled in the crypto's favor, and now that Gensler is on his way out, the SEC is unlikely to pursue an appeal any further.
XRP's regulatory future is clearing, but is that enough?
A friendlier SEC is certainly great news for XRP, and if the SEC indeed confirms it is not pursuing an appeal, I think it's likely XRP's price will rise. That said, I'm not convinced that it has long-term value.
XRP's main value proposition is that it makes banking and financial transactions fast and cheap. The methods currently use in fund transfers led to $193 billion in fees in 2023. But the banking industry is unlikely to change its practices for one big reason, even though XRP is significantly cheaper.
Even if XRP comes to be used by the entire industry, annual revenue from those transactions would be a tiny fraction of that $193 billion. This makes XRP's current market capitalization of more than $130 billion appear unrelated to its inherent value.
The other primary argument for its continued appreciation is that as financial institutions adopt the technology, they will have to buy huge amounts of XRP in order to transact on the network. This would cause a spike in demand and therefore a spike in value. The problem here is that in most cases, banks don't have to use XRP itself to use XRP's network. If a bank can use other currencies instead, it will. Nor are banks fond of holding large amounts of an asset as volatile as XRP.
Although XRP can benefit from some short-term catalysts, I'm dubious about its long-term value. It's more than possible that it will rise to $3 or higher, but I don't believe it will hold above that over the long term. For that reason, I wouldn't buy XRP at its current price.
If you are interested in investing in crypto, I think there are much better alternatives. Bitcoin is my pick for a digital asset that has a real chance of beating the market for years to come.
